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Wednesday July 25, 2007 - 06:39:09 GMT
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ACM - www.ac-markets.com
Dollar hits 2 1/2 months low vs Yen on US sub-prime worries
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland
News and Events:
The sharp fall in oil prices on Tuesday (Brent crude fell $3 per barrel to around $76) shows the lack of support at these high levels. The immediate triggers appear to be linked to two developments involving Iran: signs of progress in talks between Iran and the UN nuclear watchdog agency IAEA, and comments from an Iranian official that OPEC would increase production if required to cap prices. But whatever the precise reasons, the wobble in prices illustrates the vulnerability of prices when speculative long positions are close to record highs. Analysts continue to expect Brent crude to fall to around $65pb by year-end.
The yen surged across the board on Tuesday as growing turmoil in U.S. credit markets led investors to bail out of stocks and risky trades financed by borrowing in the Japanese currency. The yen rallied sharply as mounting worries about the housing market drove some major U.S. stock indexes down nearly 2 percent by the close. The Dollar also sank to a record low against the Euro. Some analysts said "We're teetering very close to the edge of a carry trade unwind, actual view is that there are reasons to bail out right now".
The yen, the lowest-yielding currency in the industrialized world, has been a popular financing vehicle for speculators investing in higher-yielding assets of countries such as Australia and New Zealand through so-called carry trades. As investors unwound some of those bets, the yen fell about 0.7% against the currencies of both countries on Tuesday.
UsdJpy sank 0.57% to 120.27 yen after touching a two-month low of 120.00. Meanwhile, the EurJpy dropped 0.44% to 166.20. EurUsd jumped to a record high of 1.3852 before settling back at 1.3820 up 0.14% on the day. GbpUsd climbed to a 26-year high 2.0654 before settling back at 2.0610 up 0.09%.
The Bank of Japan is expected to raise interest rates at only a glacial pace this year, posing little threat to the carry trade. But worries that weakness in the US sub-prime mortgage market is spreading to the wider economy could cause a flight from risky assets -- leading to a rush to buy back yen. If problems stemming from the sub-prime market spread to other sectors, foreign demand for U.S. corporate debt -- a major source of financing for the trade deficit -- could waver and further hurt the dollar, some analysts say.
Given the market's sensitivity about the health of the housing market, US existing home sales data due on Wednesday and new homes sales due on Thursday are likely to be major centers of attention this week.
Both precede the first reading of second-quarter US Gross Domestic Product, due on Friday, which will indicate to what extent the economy bounced back from the January-March period, it most sluggish quarter of economic growth in more than four years. The latest plunge lower in the dollar coincided with a report showing Canadian Retail Sales in May had the biggest increase in nearly a decade, pushing the Dollar to a 30-year low against the Canadian dollar of 1.0340.
Today's Key Issues (time in GMT):
11.00 US July 20th, MBA Mortgage Applications previously 0.9%
14.00 US June Existing Home Sales 5.87M vs 5.99M
14.00 US June Existing Home Sales -1.8% vs -0.3% (MoM)
18.00 US Fed's Beige Book for August 7 FOMC meeting
21.30 NZD RBNZ Official Cash Rate 8.25% vs 8%
21.15 US Fed's Geithner speaks about global integration, Washington
23.30 US Fed's Poole honored at dinner in Philadelphia
The Risk Today:
EurUsd is consolidating on top of the trend after having hit 1.3852 yesterday high. Further uptrend will open the way toward 1.3925 and 1.3986 resistances. A return below 1.3750 and 1.3659 former resistances will put the actual positive trend on hold. Initial minor support holds 1.3780. Minor resistance holds 1.3845.
GbpUsd bullish trend remains intact. Market hit yesterday a new 26-year peak 2.0654. It marks also initial resistance. Further upside may open the door toward 2.0706 trend top. Range formed from 2.0459 Wednesday low to Friday 2.0482 low marks support area. Market 2.0100 former trend resistance holds strong support. A break there will open the door back down to 2.0000 pivot point.
UsdJpy dropped for the third session after having failed to hold over 122.10 2nd July low. The risk is now of further setbacks; the recent break of 120.78 has accelerate the slide to 120 and targets 119.55 and 118.37, and possibly even 116.58. Initial minor resistance holds 120.98 low from 10th of July and yesterday high.
UsdChf consolidate since last week low of 1.1962. Renewed down trend, may shift on 1.1881 early December low and 1.1739 April 2005 trend supports. Former support 1.2234 marks resistance after initial resistance 1.2080 Monday high. Rebound from current situation may target 1.2082 resistance (23.6% retracement of 1.2470 to 1.1962 decline) and 1.2157 (38.2% retracement).
Resistance and Support:
|S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot |
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Mon 16 Oct /ul>
01:30 CN- CPI
21:45 NZ- CPI
Tue 17 Oct
08:30 GB- CPI
09:00 DE- ZEW Survey
09:00 EZ- Final HICP
Wed 18 Oct
12:30 US- Housing Starts & Permits
14:30 US- EIA Crude
Thu 19 Oct
01:30 AU- Employment
08:30 GB- Retail Sales
12:30 US- Weekly Jobless
Fri 20 Oct
12:30 CA- Retail Sales & CPI
14:00 US- Existing Homes Sales
John M. Bland, MBA
- POTENTIAL PRICE RISK: HIGH Tue-- 08:30 GMT GB- CPI top tier confirmation of Inflation.
- POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT DE- ZEW Survey second most important German monthly Survey.
- POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT EZ- final HICP revision to flash report. Revisions are usually minor.
- POTENTIAL PRICE RISK: Medium Tue-- 13:15 GMT US- Industrial Production. Top output indicator.
- POTENTIAL PRICE RISK: Medium Wed-- 12:30 GMT US- Housing Starts and Permits revision to flash report. Useful housing leading indicator.
- POTENTIAL PRICE RISK: Medium Wed-- 14:30 GMT US- EIA Crude. Top WTI inventory measure.
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